AOL Acquires Netscape; Sun Tags Along

Talks have been swarming since Sunday evening that AOL, whose Internet Explorer bundling contract with Microsoft Corp. ends January 1, would buy the Internet browser giant, but late yesterday it seemed as if talks had come to a snag because of apparent Netscape stockholder angst. Now, however, the deal looks to go through for an apparent payoff of $4.2 billion, subject to the approval of Netscape stockholders, and expected to close by spring 1999.

AOL-Netscape

The specifics have AOL controlling distribution of the Netscape browser suite as well as operating the popular Netcenter portal site. "The development of e-commerce is entering an exciting new stage," says Steve Case, chairman and CEO of AOL. "Increasingly, companies are seeing the power of the Internet as central to their business strategies and consumers are seeing the convenience of online shopping as central to their lives."

Case says that they will combine the two Internet powerhouses to make a more robust e-commerce environment for consumers and businesses.

After the browser war was over, Netscape turned to different initiatives including the portal site, which they launched in June and now has more than 9 million registered members, and business software, with which they've been able to obtain five percent (ranked third) of the Internet Web server share according to the latest Netcraft Web Server Survey (www.netcraft.com/survey) released this month.

Sticking with what got them where they are today, Netscape released its latest browser suite, Communicator 4.5, last month. AOL says it plans to continue to develop the Communicator and pursue new distribution channels.

AOL-Sun

Tagging along for the ride is Sun Microsystems Inc., who will take advantage of Netscape's enterprise Web servers and will team up with AOL to provide new enterprise e-commerce initiatives throughout the industry. The two companies will use Sun's Java technology to develop selected next-generation Internet devices for Internet users to access AOL brands from anywhere, anytime.

Under the definitive three-year development and marketing agreements, AOL and Sun will work together to develop solutions for companies and ISPs who want to rapidly enter the e-commerce market and scale their e-commerce operations. Sun will become a lead systems and service provider to AOL, with AOL committed to purchase systems and services worth $500 million at list price from Sun through 2002 for its e-commerce partners and its own use.

America Online will receive more than $350 million in licensing, marketing and advertising fees from Sun, plus significant minimum revenue commitments over the next three years.

The companies hope the new offerings will allow customers to completely outsource their electronic commerce operations, with AOL providing everything from Internet traffic and application connectivity to online marketing, order, billing and payments. Sun and AOL will also market their e-commerce solutions to customers, including other Internet service providers who want to create part of the solutions themselves.

Sun will initially be able to sell AOL's Netscape-branded suite of middleware software, with both companies using each other's sales channels and customer relationships to market their existing products and services. As new products are developed, both companies will sell the next-generation e-commerce solutions. Sun's service net will provide technical support for these products and services.

It is believed that most of the Netscape Corporation will stay intact and that Mountain View, Calif. Will still be run by Netscape.

This announcement comes on the heels of last week's injunction imposed on Microsoft Java software by a Northern California U.S. District Court. The injunction was an apparent victory for Sun because Microsoft will have to change the default setting in its Visual J++ to pure Java, instead of Windows-specific Java. --Brian Ploskina, Assistant Editor